Goldman Sees Iran Tensions Posing Long-Term Threat to Global Oil Supply

Iraqi Oil Worker Works In Refinery

While the Kurdistan-Iraq standoff is a risk to shorter-term oil production, the increased tensions between neighboring Iran and the USA are a longer-term and bigger threat to global oil supplies, according to Goldman Sachs.

As for crude's long-term fate, get set for oil at $10 per barrel over the next six to eight years: that's the contention of Chris Watling, chief executive of Longview Economics, who thinks the price drop will be caused by alternative energy fuels attracting more and more investors.

While Iraq's government is clashing with Kurdish forces in the north of the Organization of the Petroleum Exporting Countries (Opec) nation, raising the prospect of output disruptions in the region, both sides have an incentive to keep oil flowing due to low production costs and "high revenue" available per barrel, according to the bank.

Last week, US President Donald Trump refused to certify that Iran is complying with the nuclear accord despite the positive report by the global inspectors.

Iraqi government forces captured the Kurdish-held oil city of Kirkuk on Monday, responding to a Kurdish independence referendum.

He noted that the lifting of sanctions by former president Barack Obama resulted in Iran's production rising from 3 million barrels per day (bpd) to just under 4 million bpd, a doubling of exports, and global oil companies finalizing investments in the Islamic republic; but with Trump's hard-line stance, "you could see a challenge for Iran to get any investment and deliver on its production".

"In the case of Kurdistan, the 500,000 bpd Kirkuk oil field cluster is at risk", Goldman Sachs said in a note to clients. "Oil security remains a critical issue for all the countries".

Analysts forecast US crude inventories declined by about 4.2 million barrels in the week to October 13. Birol said the rate of compliance by Opec and its partners in their targeted cutting of about 1.8-million bpd between January this year and March 2018 was about 86%. "Without the support of other countries, it appears unlikely that production would fall by one million barrels a day" to levels before world powers reached a deal with the Persian Gulf state to curb its nuclear program, the bank's analysts said.

Merrill Lynch said it expected a sizeable deficit in 2017 of 230,000 bpd, and that there was further upside potential to its outlook.

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